Implementation of the Default Regulations to the Pension Funds Act
Several new regulations to the Pension Funds Act became law in August 2017. These “default” regulations have far reaching implications for all funds. All funds registered before 1 March 2018 were granted a blanket 18-month extension, meaning they only have to comply with the requirements by 1 March 2019. Some retirement funds are underway with their implementation procedures, but many still need to do so. Some funds have experienced significant challenges during this implementation process.
The three key pillars of the regulations are:
- Default investment portfolio(s) – boards of trustees must implement one or more default investment portfolios into which a member’s retirement savings will automatically be invested, unless and until the member opts out and chooses a different portfolio.
- Default preservation and portability – unless and until a member, who leaves a fund before retirement, instructs the fund to transfer their exit benefit to another fund or pay the benefit out in cash, the fund must retain/preserve the member’s benefit in the fund and convert the member to a “paid up” member.
- Annuity strategy – boards of trustees must devise an annuity strategy that provides retiring members with pension (annuity) options.
The regulations affect and require some form of action from every type of retirement fund, whether pension or provident, large or small, defined contribution or defined benefit, as well as for preservation and retirement annuity funds. The regulations will require amendments to the rules of most funds and these amendments will take at least a few months to be approved by the necessary regulatory bodies. This means that all boards of trustees need to get underway with the drafting of the rule amendments and other implementation procedures in anticipation of the looming implementation date of 1 March 2019.
Funds may intend to apply for an exemption from a specific provision in the regulations due to the nature of that particular fund, but they need to ensure that the outcome of the exemption application is received well before the implementation date.
In assisting funds with their implementation procedures, we have already identified some practical difficulties that require detailed consideration, including:
- In what format should exemption applications be lodged?
- What will be the impact of the default preservation provisions on deferred pensioner arrangements that already exist in some funds?
- What information must be contained in a “paid-up membership certificate” that is intended to follow a member from one fund to another?
- How and when is a fund required to conduct “retirement benefits counselling” as required in terms of the legislation?
- How will the provisions in the Pension Funds Act relating to the distribution of lump sum death benefits apply to paid-up members or to in-fund living annuitants?
- Where do funds stand in relation to cost implications of the implementation of the regulations, particularly with regard to system development by their respective administrators?
Funds are urged to seek the appropriate assistance and expertise in order to ensure that all issues are adequately addressed well in advance of the implementation date of 1 March 2019.
For more information on the above, please contact:
Pension Law Partner
+27 31 575 7208